Softening a tax on hard cider

Five years ago, Derek Grout took his family's five-decade-old Columbia County apple farm in a new direction, founding Harvest Spirits Distillery to create a line of award-winning fruit-based spirits.

The distillery annually produces 60,000 gallons of hard cider — an increasingly popular beverage and a $600 million-a-year industry nationally — but then converts it all to hard liquor.

A quirk of federal tax law is a disincentive for the Grouts to keep and sell some of the hard cider instead of distilling it all into spirits.

The law taxes the cider at rates between four and 14 times steeper than beer depending on its alcohol content or fizziness, and that put a cork in many growers' plans for expansion, U.S. Sen. Chuck Schumer said Friday.

Schumer has proposed a bill to fix that, increasing the alcohol content of hard cider from the 7 percent threshold for wine to 8.5 percent and scrapping the carbonation threshold that pushes it into the higher "champagne" tax rate.

"We call it the bubbly tax," said Elizabeth Ryan of Breezy Hill Orchard and Cider Mill in Dutchess County. She started making hard cider in 1996 but said she quit for more than a decade due to "somewhat draconian tax laws."

"The federal law discriminates against hard cider," he said Friday after touring the Route 9 distillery behind Golden Harvest Farms, which has been run by the Grout family since the late 1950s. "The tax is so large, it makes making hard cider not quite prohibitive, but far more difficult than it should be."

The problem, Grout said, is the sugar in the fruit used to make the cider, which makes it difficult to control the alcohol content of the final product.

"Fruit is notoriously fickle," Grout said.

Schumer said his bill would put the U.S. cider industry on an equal footing with European imports and help farmers in New York — the second-largest apple producing state in the country — cultivate a backup source of income should severe weather such as hail damage crops and render them unfit for sale to pickers.

"It's not only additional income and additional jobs," he said, "but it's sort of a great insurance policy for our apple growers."

The federal push comes on the heels of state legislation signed this month by Gov. Andrew Cuomo that establishes a new class of farm-based cidery license for smaller producers who make their cider from New York products. The law, among other things, exempts farm-based cideries from sales tax reporting requirements.

The state's farm-based wineries, breweries and distilleries already had similar benefits. The law also adjusted the allowable alcohol content in ciders from 7 percent to 8.5 percent — the same change Schumer is seeking.

"We were being unfairly treated, but it's evening out," said Sonya del Peral, whose son Alejandro is behind Nine Pin Cider Works on Broadway in Albany.

Jim Trezise, a spokesman for the New York Wine & Grape Association, said the wine industry typically supports legislation to aid fellow farm-based, craft beverages but said he did not have enough information on Schumer's proposal for the association to take a position on it.

"I'm here to tell you as a 30-year apple grower, we need this bill," said Ryan, of Breezy Hill Orchard. "It's economic development. It's jobs."

Sen. Charles Schumer samples some of the liquor produced at Harvest Spirts Distillery by proprietor Derek Grout, right, Friday, Nov. 1, 2013, at Golden Harvest Farms in Valatie, N.Y. Sen. Schumer came to Golden Harvest to promote his CIDER Act legislation which would lower the tax rate that hard cider is calculated at. The CIDER Act would bring hard cider into the same tax rate as beer. It is currently taxed at a higher rate which is comparative to wine. (Will Waldron/Times Union) less

Sen. Charles Schumer samples some of the liquor produced at Harvest Spirts Distillery by proprietor Derek Grout, right, Friday, Nov. 1, 2013, at Golden Harvest Farms in Valatie, N.Y. Sen. Schumer came to ... more

Photo: WW

Photo: WW

Image
1of/10

Caption

Close

Image 1 of 10

Sen. Charles Schumer samples some of the liquor produced at Harvest Spirts Distillery by proprietor Derek Grout, right, Friday, Nov. 1, 2013, at Golden Harvest Farms in Valatie, N.Y. Sen. Schumer came to Golden Harvest to promote his CIDER Act legislation which would lower the tax rate that hard cider is calculated at. The CIDER Act would bring hard cider into the same tax rate as beer. It is currently taxed at a higher rate which is comparative to wine. (Will Waldron/Times Union) less

Sen. Charles Schumer samples some of the liquor produced at Harvest Spirts Distillery by proprietor Derek Grout, right, Friday, Nov. 1, 2013, at Golden Harvest Farms in Valatie, N.Y. Sen. Schumer came to ... more